Senate Passes Revised Budget Bill

On July 1, 2025, the Senate narrowly passed an amended FY 2025 budget bill that incorporates most of the House tax proposals, which we previously summarized here, but differs in various aspects.  The Senate bill will now return to the House, which will vote on whether to approve the as-revised bill. 

Both bills’ major business, international, individual, and exempt organization tax proposals, as well as key differences, are summarized below. 

Business Tax Proposals

• Increasing the Section 163(j) limitation. Both bills would increase the total interest that businesses may deduct starting in 2025 by modifying the Section 163(j) business interest expense limitation from 30% EBIT to 30% EBITDA, although the Senate bill would do so permanently while the House bill would do so only through 2029.
• Preserving the PTET deduction. Unlike the House proposal to eliminate the deduction for certain state taxes paid by pass-through entities (PTET), the Senate bill preserves the PTET deduction without limitation.  
• Increasing the SALT deduction cap. Both bills would increase the total state and local taxes (SALT) that an itemizing taxpayer may deduct from $10,000 to up to $40,000 for individuals earning $500,000 or less.  The Senate bill would increase the cap only through 2029 (i.e., reverting to $10,000 in 2030), whereas the House bill would permanently increase the cap.
• Eliminating and phasing out certain energy tax credits. Both bills would eliminate consumer-facing credits for electric vehicles and home efficiency upgrades as well as curtail certain other energy tax credits introduced by the 2022 Inflation Reduction Act.  The Senate bill would modify the eligibility timeline for the tech-neutral investment tax credit (“ITC”) and production tax credit (“PTC”) by requiring either that wind and solar projects begin construction within 12 months of enactment of the budget bill or otherwise be placed into service before 2028.  By contrast, the House bill would require wind and solar projects to begin construction within 60 days of the bill’s enactment—a tight timeline that drew backlash from investors who had expected these credits to be available much longer.
• Extending the Clean Fuel Production Credit. The bills would extend the credit through 2029 (Senate) or 2031 (House).
• Reinstating the TCJA’s 100% bonus depreciation. Both bills would reinstate the TCJA’s 100% bonus depreciation for certain property acquired and placed in service after January 19, 2025, although the Senate bill would do so permanently while the House bill would do so only through 2029.
• Introducing a new 100% bonus depreciation provision for certain nonresidential real property. Both bills introduce a new provision providing for 100% bonus depreciation for nonresidential real property connected to certain agricultural or chemical manufacturing and production activities, provided that (i) construction begins between January 20, 2025 and December 31, 2029, and (ii) the property is put into service before 2031 (Senate) or 2033 (House).
• Immediate expensing for domestic R&D. Both bills would allow immediate expensing of domestic R&D costs incurred from 2025 onward, although the Senate bill would do so permanently and the House bill would do so only through 2029. The Senate bill would also apply retroactively for R&D expenses incurred during 2022 through 2024 by allowing certain small business taxpayers to claim a full deduction in the expense year, and other taxpayers to immediately expense any remaining amortization. 
• Extending the Section 199A pass-through entity tax deduction. Both bills would permanently extend the TCJA’s Section 199A pass-through entity tax deduction on qualified business income, although the House bill would further increase the deduction from 20% to 23% of such income.
• Clarifying Section 707(a)(2). Both bills would clarify that the partnership rules applicable to disguised sales and disguised payments for services are self-executing in the absence of regulations, as discussed further here.
• Partially excluding certain agricultural loan interest income. Under only the Senate bill, banks could exclude from their gross income 25% of interest on certain loans secured by rural or agricultural property and incurred after the enactment date.
• Modifying the REIT rules. Both bills would increase the total amount of Taxable REIT Subsidiary (“TRS”) stock that a REIT can hold from 20% to 25%.
• Increasing the Low-Income Housing Credit. Both bills would increase the Low-Income Housing Credit by allowing states to issue more tax credits, and increasing credits for properties financed by tax-exempt bonds, although the Senate bill would do so permanently, and the House bill would do so only from 2026 through 2029.
• Increasing the Section 179 limitation on expensing certain depreciable business assets. The Senate bill would permanently increase the Section 179 limitation from $2.5 million to an inflation-adjusted $4 million, and the House bill would only increase the limitation through 2029.

International Tax Proposals

• Eliminating the Section 899 Revenge Tax. Unlike the House bill, the Senate bill omits Section 899, the so-called “revenge tax” that would have targeted investors from countries that impose taxes considered “unfair” to U.S. taxpayers and their subsidiaries.  The omission follows the recent G-7 agreement in principle to exempt U.S.-based multinationals from certain taxes under Pillar 2 of the OECD BEPS project that were the principal “unfair” taxes targeted by earlier drafts of Section 899.
• Increasing the GILTI, FDII, and BEAT tax rates. As compared to the House bill, the Senate bill would further increase the currently effective rates on Global Intangible Low-Taxed Income (GILTI) from 10.5% to 14%, on Foreign Derived Intangible Income (FDII) from 13.125% to 14%, and on the Base Erosion and Anti-Abuse Tax (BEAT) from 10% to 10.5%.
• Modifying the CFC rules. Unlike the House bill, the Senate bill would modify the controlled foreign corporation (CFC) rules by (i) permanently extending the CFC look-through rule, (ii) restoring the limitation for applying downward attribution from a foreign person to a U.S. person when determining CFC status, and (iii) revising the calculation of a U.S. shareholder’s pro rata share of subpart F income.

Individual Tax Proposals

• Preserving the TCJA’s tax rates. Both bills would permanently extend the TCJA’s tax rates with a 37% top marginal tax rate.
• Permanently eliminating the personal exemption and various itemized deductions. Both bills would permanently eliminate the personal exemption and various itemized deductions, including miscellaneous itemized deductions, deductions for casualty losses (other than from federally or state declared disasters), and moving expense deductions.
• Limiting excess business losses. Both bills would permanently limit a non-corporate taxpayer’s ability to claim excess business loss deductions.
• Increasing the estate and gift tax exemption. Both bills would increase the exemption to an inflation-adjusted $15 million.
• Limiting AMT. Both bills would permanently extend the limitations on the Alternative Minimum Tax (AMT), including the increased exemption from, and the increased income threshold for phasing out the exemption to, the AMT.
• Limiting mortgage interest deductions. Both bills would permanently limit mortgage interest deductions to the first $750,000 of mortgage indebtedness, and eliminate interest deductions on home equity indebtedness.
• Limiting charitable contribution deductions for itemizing taxpayers. Unlike the House bill, the Senate bill would disallow charitable contribution deductions for itemizing individuals to the extent that their annual contributions were less than or equal .5% of their contribution base (generally their adjusted gross income). 
• Expanding charitable contribution deductions for non-itemizing taxpayers. Both bills would allow non-itemizing taxpayers to deduct (in addition to their standard deduction) charitable contributions by up to $2,000 (Senate) or $300 (House).
• Deducting auto loan interest. Both bills would permanently allow certain taxpayers, subject to an income phaseout, to deduct interest on loans secured by cars produced in the United States.
• Retaining the TCJA’s standard deduction. Both bills would permanently extend the TCJA’s increased standard deduction.  

Exempt Organization Tax Proposals

• Increasing endowment excise tax. Both bills would increase the 1.4% excise tax on certain private universities’ net investment income by applying graduated tax rates according to the ratio of endowment per student, using similar thresholds.  The Senate bill would (i) generally apply lower rates (e.g., 8% top rate) than the House bill (e.g., 21% top rate) and (ii) omit the controversial House bill excise tax exclusion for "qualified religious institutions."
• Limiting corporate charitable deductions. Both bills would limit a corporation’s charitable deductions by disallowing deductions that are less than or equal to 1%, or more than 10%, of the corporation’s adjusted gross income.
• Increasing excise tax on big salaries. Both bills would expand the scope of highly-compensated non-profit employees whose compensation is subject to a 21% excise tax.